Peru - Economic Briefing December 2002

Economy Shines Bright in Dark Latin America (continued)

Prices decline again in November
In November, the Consumer Price Index for Metropolitan Lima dropped 0.40%. The reading was in contrast to expectations of a 0.20% increase and ends a string of four consecutive monthly price hikes, which had steered the country clear from deflation. As recent as July, the annual headline inflation rate was in negative territory. However, despite the November price drop, annual headline inflation rose from 1.36% in October to 1.46% in November. The November price drop was mainly provoked by declining prices for food, which account for almost half of the consumer price index calculation. Core inflation figures, which are published by the Central Bank, have not yet been released. However, fresh fruits and vegetables seem to have been main drivers behind November price developments. Consequently, the annual core inflation rate is likely to increase slightly from the 2.1% observed in October. Consensus Forecast panellists expect headline inflation to end this year at 1.7%, unchanged from last month. This corresponds to a monthly increase below 0.2% in the final month of the year. For 2003, panellists expect only a moderate increase in year-end inflation to 2.0%.

Financial account mushrooms amid strong foreign direct investment
In the third quarter, the current account registered a deficit of US$ 211 million, equivalent to 1.5% of GDP. The reading was slightly larger than expected and also above the US$ 119 million deficit recorded in the same period last year, but was broadly in line with the US$ 221 million deficit in the second quarter. The current account components did not represent any noteworthy swings. More surprising was the development in the financial account balance, which mushroomed from a US$ 86 million surplus in the third quarter last year to a US$ 973 million surplus this year, which was more than sufficient to cover the current account gap. The strong increase is mainly due to an increase in private sector foreign direct investment, most notably in the Peruvian beer industry. The annual current account deficit has just surpassed the US$ 1.0 billion threshold (1.8% of GDP) and is expected to remain at that level until the end of the year. In 2003, the deficit is seen to rise slightly to 1.1 billion (1.9% of GDP).
 

Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing on Peru.  For more details please click here.

For five-year forecasts, please click here.